U.s. Trade Gap Narrows To A 4-year Low

August 29, 1989|By William Sluis.

The U.S. trade deficit narrowed to $27.72 billion from April through June, the smallest quarterly imbalance in four years, held in check by a somewhat cheaper dollar and the ongoing boom in exports, the Commerce Department said Monday.

Some economists complained, however, that the rate of improvement has slowed to a sedate stroll from last year`s lively gallop.

``This is a sign of continuing improvement and, compared to what most economists were expecting earlier this year, it`s a pleasant surprise,`` said Richard Peterson, senior vice president and chief economist of Continental Bank here.

He said some improvement in the trade gap is likely to continue, because a slowing U.S. economy is discouraging consumer appetites for imports.

``June, in particular, showed a strong performance,`` Peterson said.

``The trade deficit has been falling more than analysts were forecasting since late last year.``

The April-June trade deficit, the difference between imports and exports, was the lowest since a $25.7 billion deficit in the first quarter of 1985.

The shortfall between imports and U.S. exports showed a 2.3 percent narrowing from the first three months of the year, when the trade deficit totaled $28.38 billion.

The brighter picture stemmed from a 3.4 percent increase in exports, which climbed to a record $90.87 billion. The rise in exports more than offset a 2 percent rise in imports, which also hit a record of $118.58 billion.

The largest export increases were in industrial supplies and materials, capital goods and consumer goods.

If the rate of the first two quarters continued through the rest of 1989, the deficit would fall to $112.2 billion from $127.2 billion in 1988, the Commerce Department said.

However, the picture is far from totally favorable, said Howard Lewis, vice president for international affairs for the National Association of Manufacturers in Washington.

``Last year, the trade deficit narrowed by about $37 billion. This year, it will only drop by perhaps $15 billion. And next year, it could worsen,`` he noted.

One disturbing aspect of the report, he said, is the continuing shortfall in trade of capital equipment-such items as airplanes, computers, telecommunications gear and machine tools.

``These items are a traditional source of American export strength, but we continue to show sizable deficits in this area,`` he said.

While buying such items is expected to make the U.S. more competitive in the long run, the economy needs some immediate evidence that such a strategy is working, Lewis said.

``It`s like preparing for a golf tournament by spending your time in the pro shop, buying new clubs,`` he said. ``The evidence won`t be seen until you go out to the course and tee the ball up.``

Merely buying more and more new equipment won`t necessarily make the U.S. competitive, Lewis said.

``At some point, we have got to see increased sales overseas,`` he said.

Many economists have worried that a recent jump in the value of the dollar will make U.S. goods less attractive on overseas markets, while Americans` appetite for imports remains undiminished. If so, the trade situation would become more discouraging.

Peterson said he doesn`t view that as likely, in the short term at least, because ``there still is some room for growth of exports.``

The report on merchandise trade as calculated on a balance of payment basis confirmed an improvement already noted in the Commerce Department`s monthly merchandise trade reports.

The totals are slightly different because the new report excludes military sales by the U.S. government to foreign governments and makes other minor adjustments in the monthly figures.

In the April-June quarter, nonfarm exports increased by $2 billion to a record $80.1 billion. U.S. agricultural exports were virtually unchanged at $10.7 billion in the April-June quarter. Wheat shipments dropped $500 million, reflecting a drop in exports to the Soviet Union.

The increase in imports reflected a jump in petroleum imports, which rose 24 percent, to $13.4 billion, with most of the increase coming from higher prices rather than volume. Nonoil imports declined by $300 million, to $105.2 billion, with the largest decrease coming from a $1.7 billion drop in foreign car shipments.

The deficit with Japan fell $1 billion, to $12.2 billion, during the quarter, the lowest level in a year.

The deficit with members of the Organization of Petroleum Exporting Countries rose $1.9 billion, to $5 billion. The deficit with the European Common Market rose to $317.6 million from $32.5 million.